The Respondent (“Manchester”) appointed the Appellant (“Kudos”) its exclusive supplier of catering services for a 5 year period. Midway through the agreement Manchester purported to terminate. Kudos alleged repudiatory breach and claimed £1.3 million loss of profits.
Manchester contended that such liability was excluded by clause 18.6 of the agreement, which stated:
“[Manchester] … shall have no liability whatsoever in contract, tort (including negligence) or otherwise for any loss of goodwill, business, revenue or profits… suffered by [Kudos] or any third party in relation to this Agreement…”
The Court of Appeal rejected this argument and held that the clause only restricted such liability where it was incurred through performance of the agreement and not through Manchester’s refusal to perform.
Kudos would almost certainly be unable to obtain an order for specific performance as the agreement required constant supervision and co-operation between the parties. If clause 18.6 excluded a claim for loss of profits it would render the agreement effectively devoid of contractual intent since there would be no sanction for non-performance.
It was presumed that contracting parties did not lightly abandon remedies for breach afforded to them by the general law. Clear words were required to rebut the presumption and such words had to be examined in context. Clause 18.6 formed part of a series of sub-clauses dealing with the provision of indemnities and insurances to support them. It was designed, in part, to qualify clause 18.4, whereby Manchester was obliged to indemnify Kudos against third party claims arising from its negligent performance of the agreement. Since clause 18.6 also referred to losses suffered by third parties and Manchester was only obliged to indemnify Kudos against such losses arising out of defective performance as opposed to a refusal to perform, clause 18.6 would similarly be restricted to losses incurred through performance of the agreement.
Such an approach construed the contract consistently with business common sense. Had the parties wished to exclude all liability for financial loss in the event of refusal to perform the court would have expected them to spell it out clearly, probably in a free-standing clause.
James Stuart of Lamb Chambers appeared with Jeffrey Gruder QC for the successful Appellant.
Winston Jacob / 1st Mar 2013
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